RDIV: Outperforming In 2022, But Volatility Is Concerning (NYSEARCA:RDIV)

This dividend exchange-traded fund (“ETF”) article series aims at evaluating products regarding the relative past performance of their strategies and quality metrics of their current portfolios. As holdings and weights change over time, I post updated reviews when necessary.

RDIV strategy and portfolio

The Invesco S&P Ultra Dividend Revenue ETF (NYSEARCA:RDIV) has been tracking the S&P 900^® Dividend Revenue-Weighted Index since 09/30/2013. It has 61 holdings, a distribution yield of 3.32% and at total expense ratios of 0.39%.

As described by Invesco, RDIV universe is the S&P 900 Index excluding the top 5% by dividend yield and the top 5% by payout ratio in each sector. Then, the top 60 stocks by dividend yield are weighted according to revenues, with a maximum 5% per stock. The portfolio is reconstituted and rebalanced quarterly.

RDIV is mostly invested in U.S. companies (97%), 48.1% in large companies, 40.4% in mid-caps and 11.5% in small caps. The fund is quite concentrated in the top 10 holdings, listed below: they weigh 49.2% of asset value.

Ticker	Name	Weight%	EPS growth %TTM	P/E TTM	P/E fwd	Yield%
MMM	3M Co	5.36	-29.65	20.62	14.18	4.04
CAH	Cardinal Health Inc	5.26	-190.92	N/A	11.87	3.22
CVX	Chevron Corp	5.19	703.62	10.26	8.23	3.70
PRU	Prudential Financial Inc	4.92	-70.22	17.88	9.50	4.97
VLO	Valero Energy Corp	4.92	616.49	6.04	4.27	3.73
WBA	Walgreens Boots Alliance Inc	4.91	134.95	6.29	7.78	4.92
C	Citigroup Inc	4.85	-21.34	6.60	7.25	3.95
GILD	Gilead Sciences Inc	4.67	-19.87	18.62	9.23	4.78
DUK	Duke Energy Corp	4.58	29.14	22.05	20.02	3.68
ABBV	AbbVie Inc	4.53	90.35	19.53	9.98	4.09

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The heaviest sector is utilities (22.3%), followed by financials (17.5%) and healthcare (14.5%). Other sectors are at 10% and below. Compared to the S&P 500 index (SPY), RDIV overweights not only utilities and financials, but also consumer staples, energy, and materials. It underweights communication, industrials, consumer discretionary and ignores technology.

Performance

Since inception in 2013, RDIV has lagged SPY by 2.44 percentage points in annualized return, with a much higher risk in drawdown and volatility (standard deviation of monthly returns). It has also lagged one of its closest competitors among dividend ETFs: the Schwab U.S. Dividend Equity ETF (SCHD).

	Total Return	Annual.Return	Drawdown	Sharpe ratio	Volatility
RDIV	140.04%	10.42%	-46.78%	0.55	19.28%
SPY	190.52%	12.83%	-32.05%	0.81	14.49%
SCHD	192.61%	12.92%	-32.29%	0.84	14.01%

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Data calculated with Portfolio123

However, RDIV has outperformed both of them in 2022 to date, showing a positive return:

Comparing RDIV with a reference strategy based on dividend and quality

In previous articles, I have shown how three factors may help cut the risk in a dividend portfolio: Return on Assets, Piotroski F-score, and Altman Z-score.

The next table compares RDIV since inception with a subset of the S&P 500: stocks with a dividend yield above the average of their respective indexes, an above-average ROA, a good Altman Z-score, and a good Piotroski F-score. It is rebalanced annually to make it comparable with a passive index.

	Total Return	Annual.Return	Drawdown	Sharpe ratio	Volatility
RDIV	140.04%	10.42%	-46.78%	0.55	19.28%
Dividend quality subset	191.38%	12.87%	-36.22%	0.81	14.81%

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Past performance is not a guarantee of future returns. Data Source: Portfolio123

RDIV lags the S&P 500 dividend and quality subset. However, RDIV performance is real, whereas the subset performance is hypothetical. My core portfolio holds 14 stocks selected in this subset (more info at the end of this post).

RDIV Value and Quality

RDIV is much cheaper than SPY regarding usual ratios (see next table).

	RDIV	SPY
P/E TTM	13.34	18.61
Price/Book	2.07	3.59
Price/Sales	1.3	2.39
Price/Cash Flow	10.59	14.64

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Data: Fidelity

RDIV holds 60 stocks, of which 5 are risky stock regarding my metrics. In my ETF reviews, risky stocks are companies with at least 2 red flags among: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or dubious Altman Z-score, excluding financials and real estate where these metrics are less relevant. Here, risky stocks weigh about 11% of asset value, which is acceptable.

According to my calculation of the weighted average metrics reported in the next table, RDIV quality is very inferior to the benchmark.

	RDIV	SPY
Altman Z-score	2.02	3.44
Piotroski F-score	5.85	6.02
ROA% TTM	4.54	7.56

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Takeaway

RDIV is a dividend fund holding shares of 60 companies paying high dividend yields, mostly large and mid-caps. Constituents are weighted based on revenue. It is heavy in utilities, with over 22% of asset value in this sector. RDIV is cheaper than SPY regarding valuation ratios, but average quality metrics are underwhelming. It has underperformed the benchmark and its popular competitor SCHD since inception, but beats them year-to-date. It shows a much higher risk measured in drawdown and volatility. RDIV has a bad rating at Morningstar: one star, whereas SCHD gets five. In summary, RDIV recent performance looks great, but keep in mind it is a risky fund regarding historical data and current quality metrics. For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation (RDIV is not part of it) and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.